Transcript Document

Lecture 6:
Measuring Money
Mishkin chapter 3 – part B
Page 57-63
1
Review
def. of money
 3 functions – lower transaction cost
 evolution of money
 quiz
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2
Why do we care about measuring
money – in the society
Monetary policy: policy about money
supply and interest rate.
 Money supply in the short-run affects
interest rate and in the long-run affect
macro-econ variables such as GDP, price
level, etc.
 The Fed has some ability to manipulate
and control the money supply, but the first
step to measure it.
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Money measurement
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1.
2.
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Theoretical approaches:
focuses the degree to which assets
function as mediums of exchange
"weighted aggregate" approach
Empirical approach:

base on which measure of money works
best in helping to predict the movements of
key macro variables.
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Actual practice in the U.S.
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Actual practice in the U.S. – cont’d
M1 contains highly liquid assets that are
directly usable as mediums of
exchange (theoretical approach 1).
 As new forms of money-like instruments
emerge, the Feb adopts broader
measures of M2 and M3.
 M1 and M2 sometimes move together,
sometimes don’t.
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How reliable is the money data?
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There is difference between initially
published data and revisions.
Difference is because:
small depository institutions report
infrequently
2. seasonal adjustments
1.
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Differences average out to zero  pay
more attention with longer-run movements.
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9
Recap
Measuring the Money Supply: Actual
Practice in the U.S.
 Reliability of U.S. Monetary Data
 Quiz
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